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Archive for the Poverty Category

According to Zimbabwe’s finance minister Tendai Biti, the country’s public account balance is down to $217 after public servant salaries were paid last week. Mr Biti says that the country has no money to fund the elections and constitutional referendum that the president wants to run this year. President Mugabe has ordered him to find some money from international donors, but international donors might not be so keen on funding the types of elections that Mugabe has been running in recent years.

The situation is a complex one. In the past Mugabe and his supporters have been reluctant to accept donor funding for elections because donors want to influence the outcome by, for example, having observers to ensure that votes are counted fairly and voters are allowed to exercise their choice freely. Such western ideals do not suit Mugabe’s style of electioneering, which involves cracking down on his political opponents with violence and intimidation, and rigging vote counts.

So what Mugabe and his party really want is donations with no strings attached. Western countries who are interested in democracy and the promotion of free and fair elections are unlikely to be keen about making donations on that basis. On the other hand, less principled actors who have an eye on the country’s mineral wealth might be interested in doing a deal.

What happens in a culture where women are married as teenagers, frequently to much older men, where it is popularly believed that contraceptives cause long-term health problems, where contraception is something that husbands and wives do not speak about to each other, where religious leaders are outspoken in their opposition to contraception, and where children are a symbol of wealth? An out-of-control baby boom, of course, accompanied by poverty and starvation.

In Senegal and many other parts of West Africa, the majority religious belief is that Allah is the one who gives children, and he is in charge of providing what they need to grow healthy and strong. It is not right for people to interfere with what Allah does. Thus, in Niger, for example, the fertility rate is over 7. That is, the average number of children produced by each woman during her lifetime is more than 7. Unsurprisingly, UNICEF had to treat more than 850,000 severely malnourished children in the Sahel region last year.

The Senegalese government is making some efforts to slow the population boom, but is facing resistance in the form of entrenched cultural practices. Only 12% of Senegalese women use contraceptives, one of the lowest rates in the world. The government hopes to provide family planning services to 350,000 women over the next 3 years and hopes to increase the contraceptive prevalence rate to 27%.

At a time when wealthy countries with very large amounts of government revenue struggle to balance their budgets, the economic pressures on the governments of poor countries must be immense, and yet governments often fail to recognise the realities. The amount of revenue which the Kenyan government raises from its taxpayers is approximately 3% of that raised by the Australian government, yet Kenyan members of parliament are paid more.

Kenya has been experiencing several years of economic growth, and perhaps this has led to public perception that the treasury is a bottomless source of free money. The government used arguments of fiscal responsibility when teachers and other public servants have sought pay rises (before giving in and granting significant rises to teachers, police, nurses and lecturers), but then on two occasions passed laws granting members of parliament huge bonuses without any consideration of economic effects.

According to the current year’s Kenyan budget, more than 30% of proposed expenditure was to be financed by borrowings. The actual figure may be closer to 50% as revenue collections are well below target and large sums have been spent on pay rises, military action in Somalia, and election preparations. Expenses will multiply after the elections when a new level of regional government will be added to the existing governance structure. Kenya has some serious financial challenges ahead.

Do mobile phones cure poverty? The Nigerian government argues that they do, and it plans to hand out 10 million free mobile phones to farmers in a controversial scheme. According to the country’s minister for agriculture, the phones will help farmers “drive an agriculture revolution”, and “No farmer will be left behind.” An opposition party, on the other hand, argues that the hand-out is a cynical vote-catching exercise in advance of the 2015 elections.

The relationship between mobile phones and economic development is an interesting one. In the past 12 years or so, inexpensive mobile telephones have become prevalent in sub-Saharan Africa. During the same period, sub-Saharan Africa has experienced steady economic growth, notwithstanding continuing obstacles to growth including poor governance, insecurity, famines and disease.

So does the spread of mobile telephony cause economic growth? Or does economic growth enable the spread of mobile telephony? Or are the two completely unrelated? Intuitively, most people would see mobile phones as a net cost, rather than a net income provider; but the ability to communicate with others does bring economic benefits. For example, farmers can make telephone calls to find out where they can get the best prices for their produce.

After a long period of relative stagnation, Tanzania has been experiencing economic growth of around 6% to 7% for each year in the past decade. However, the country has also been experiencing a population explosion, creating significant infrastructure challenges as the country continues to work its way out of poverty. Tanzania’s population has tripled in the past 35 years to reach its current size of 45 million, according to the results of the August 2012 census.

At the time of the last census in 2002, the country had a population of 34.4 million. Based on current net growth rates of 2.6% per year, the population is expected to reach 51 million in 2016. However, most of the country’s infrastructure was designed and built for a vastly smaller population, many of the country’s resources are stretched to their limits, and the capacity of the government to provide services to so many people is constrained.

In the coming years there will be significant challenges in meeting the needs of the people as the population expands well past 50 million. Careful planning, both at the governmental level and at the individual level, will be required, including family planning. Nonetheless Tanzania is already doing better than its neighbours at containing population growth, with an population growth rate of 2.6% compared to Uganda’s 3.2%, Rwanda’s 2.96% and Kenya’s 2.7%.

While Kenya’s government has a range of revenue streams enabling it to cover basic governmental functions without significantly relying on foreign aid, Uganda’s revenue sources are more limited, and aid makes up around 25% of the country’s budget. Thus the cuts to aid imposed by foreign donors following the recent embezzlement of funds in the office of prime minister are likely to cause significant cash flow difficulties.

The amount of funds collected by the Ugandan government in taxes is only 13% of Uganda’s GDP, the lowest revenue as a percentage of GDP in the region. Oil was discovered in Uganda a few years ago, and it is expected to bring in significant revenue, but commercial production is still some years away. Accordingly, the stopping of foreign aid is likely to lead to retrenchment of government employees, delays to infrastructure projects, and reductions in government services.

Recent events have highlighted the differences between the US and the UK in delivering aid. The UK prefers to give budget support, as in theory that helps the government to build institutional capacity, but it increases the opportunities for embezzlement. The US prefers to give direct support to projects, reducing the potential for embezzlement but also arguably creating long-term dependence as the recipient country does not get the opportunity to develop its own institutions.

Until recently, micro-enterprise loans were the hottest thing in global development, and the universal panacea to poverty. Now, however, the Nobel Prize-winning guru of microfinance, Muhammad Yunus, has been fired from his position as managing director of the Grameen Bank which he founded, the microfinance industry in India is under siege, and people feel free to voice their criticisms of what was once sacrosanct.

Micro-lending institutions cannot operate in a profitable, sustainable manner unless they charge high interest rates and take steps to ensure high repayment rates. The economics of a micro-lending business run for profit are identical to those of a loan shark, and the difference between the two is often more a matter of public relations than reality. Micro-lending institutions frequently claim very high rates of repayment, which necessarily means that they exert enormous pressure on borrowers to make the repayments.

It is possible for someone to borrow at high interest rates and still make a profit, if the person has access to a business opportunity which offers a high rate of return. However, the majority of people do not have the skills or the access to such opportunities. To improve their lot, most people need decent jobs, not to be set up for failure by loan sharks masquerading as benevolent community development workers.

Trials have now been underway for some time on a vaccine designed to reduce the prevalence of malaria in children. Previous tests showed a measurable reduction in malaria in children aged 5 to 17 when treated with the vaccine. Unfortunately, however, the latest tests on babies aged 3 to 4 months have shown a lower degree of efficacy. It is still possible that a combination of bed nets and vaccines could prove an effective weapon against malaria.

The majority of the more than half-million people who die of malaria each year in sub-Saharan Africa are children aged under 5. At any given time around 200 million people in the world have malaria – most of them in Africa – and the majority of people living in sub-Saharan Africa are at risk of contracting the disease. The greatest number of malaria victims are in Nigeria and the Democratic Republic of Congo.

According to calculations made by the Institute of Security Studies, the eradication of malaria would contribute $430 billion to Africa’s economy by 2050. On the other hand, according to World Health Organisation estimates, it would cost $5.1 billion per year from now until 2020 to achieve current malaria control targets. Thus there are enormous potential human and financial benefits, but also very significant up-front costs.

Future economic growth in Kenya is contingent on avoiding economic shocks, according to the 2012 Kenya Economic Update Report released by the World Bank. The government’s policy actions to increase interest rates and curb expenditures at the end of 2011 resulted in the stabilising of Kenya’s economy, but the country’s economy is still vulnerable, with the current account deficit having reached record proportions.

At present the World Bank is continuing to predict an economic growth rate for Kenya of 5% in 2012 and 2013, but the country is vulnerable to economic shocks such as oil price rises, which could result in a significantly lower growth figure. Kenya started the year 2012 with an inflation rate of around 20%, but the rate has now fallen below 10%, and this may allow interest rates to fall, thereby encouraging economic activity.

The food and energy sectors are both critical to the country’s economic prospects. The prices which Kenyans have had to pay over the past year for their staple food, maize, have been around twice the international market price, while sugar has been costing around three times the international price. Electricity supplies are not as reliable as they need to be, and large imports of oil are mainly responsible for Kenya’s current account deficit.

In India, the poverty rate decreased by about 30% over the period 1975 to 2005, but at the same time the number of people in the country living on less than $1.25 per day increased from 420 million to 450 million. The average Indian income increased significantly as the Indian economy powered ahead, creating great wealth for many people, but the scale of economic development was uneven across the country.

According to one theory, economic activity tends to become concentrated in particular locations, where producers can be close to consumers. The nearness between producers and consumers lowers the cost of transport and makes it easier for producers to monitor consumer preferences. When there is a concentration of customers, economies of scale exist, lowering the costs of production for the producers. Workers are attracted to the area to get jobs, and they become consumers, adding to the demand for the products and increasing the concentration of economic activity.

On the other hand, areas where economic activity is not concentrated tend to lag behind, remaining reliant on subsistence agriculture. People from those areas tend to migrate to the cities in search of higher incomes and better living conditions. Rural incomes can increase as demand for agricultural produce increases, but first investments need to be made in transport infrastructure so that rural producers can sell their produce in the cities at a profit.